Copper Gains as Glencore Starts Biggest Cuts to Output This Year

Updated on
  • Cuts to metal production may represent 2.2% of global supply
  • Would go a long way to addressing supply surplus: Investec

Copper rose after Glencore Plc announced the biggest cut to production of the metal this year.

Copper advanced 0.5 percent to settle at $5,148 metric ton on the London Metal Exchange. Glencore suspended production at two mines in Africa for 18 months as part of a broader restructuring to help the company cope with tumbling prices for raw materials. Closing the copper sites will remove about 2.2 percent of global supply, according to John Meyer, an analyst at SP Angel Corporate Finance LLP in London.

“Prior to this we’ve seen a little tinkering at the edges, but this is a very significant cut,” Malcolm Freeman, a director of West Malling, England-based brokerage Kingdom Futures Ltd., said by phone. “This has done a lot to start addressing the problem.”

Mining companies worldwide are cutting costs, selling assets and postponing projects to strengthen balance sheets as slower demand in China and a stronger U.S. dollar sent a gauge of commodities prices to 16-year lows. Copper is near the lowest in six years and plunged 18 percent in 2015.

Other producers have announced smaller cuts. Last month, Freeport-McMoRan Inc., the largest publicly traded copper producer, lowered annual copper sales forecasts by 68,000 tons.

“You will not see the bottom until you’ve seen the industry cut capacity,” Ken Hoffman, a senior analyst at Bloomberg Intelligence, said by phone, referring to prices.

Extra Supply

Stockpiles of the metal tracked by the LME have almost doubled this year, a sign of abundant supplies. A report from Barclays Plc last week estimated supply in the copper market will exceed demand by 344,000 tons this year, a second year of surplus.

Glencore’s decision sparked a rally in other miners. Antofagasta Plc, the copper producer controlled by Chile’s Luksic family, jumped as much as 9.4 percent. KAZ Minerals Plc, which produces the metal in Kazakhstan, rose as much as 12 percent.

“A suspension for 18 months would represent a serious cut in copper supply and would go a long way to redress any supply/demand surplus,” Investec Plc said in a note on Monday.

Copper gained 1.3 percent to $2.341 a pound on the Comex in New York. U.S. floor trading is shut for a holiday.

Most other industrial metals fell, with nickel declining 2 percent in London. Lead added 0.2 percent.